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Key Idea: Pour Your Earnings Into The Future

Marcel Navarro told us that Navarro Pharmacy moved from a 38,000 square foot warehouse to a 97,000 square foot warehouse in 1997.  This allows them to offer more competitive prices as they can stock larger quantities of their private label products.

Key Question:

A: 

You should be looking for ways to invest now to cut costs and increase sales.  Navarro added warehouse capacity to store larger amounts of inventory so they can place larger orders with their vendors.

Q: How do you know whether your business would benefit from a central warehouse facility?

A: Crunch the numbers. There's really no other way. Establishing and maintaining a separate location for receiving, storing, and shipping inventory items entails incremental costs to your business. These costs include rent or interest and depreciation in the case of an owned facility, other occupancy costs such as insurance and utilities, personnel cost for staffing the warehouse, and administrative costs such as technology and accounting requirements. These costs need to be compared to the positive bottom line impact of having such a facility.

Q: What benefits might you expect from maintaining a separate warehouse facility?

A: Marcel talked about the benefit Navarro Pharmacy has realized is in the company's cost of goods. Buying for multiple stores at the same time increases the size of their purchase orders and thereby makes them a more valued (bigger) customer to their vendors. Navarro is able to reduce their costs, which in turn allows them to provide their customers with lower prices while still selling their products at a profitable margin. Lower prices are something customers notice, and when combined with all the other things the Navarros do right, result in higher market share.

Q: Are there other benefits of maintaining your inventory in a single location?

A: There sure are! Inventory control is one of the biggest challenges a small business owner faces. A separate location facilitates achieving the ultimate and often elusive goal of just-in-time (JIT) stocking. Overstocking of inventory is expensive since it ties up your capital or results in increased interest cost.

Even more costly, excessive quantities of inventory lead to obsolescence and/or spoilage problems, resulting in markdowns and lost profits. "Stock outs," not having an item available that a customer wants to buy, are potentially the most damaging aspect of a poor inventory control system as they result in lost sales and even lost customers. These costs are difficult to measure since they are "off the books" but they have just as big an impact on the bottom line as the costs associated with overstocking.


Think about it

What investments do you need to make now to insure your future? How can you increase your influence with suppliers?  What can you do to reduce cost and lower prices to customers?  Or, what services can you add so that you can raise your prices?

Clip from: Navarro Discount Pharmacies

Miami: In this city, a destination for new Spanish-speaking Americans, finding somebody who understands you, knows and feels your pain, is a seismic relief. With a profound empathy, this family's business is committed to service and to solving very big problems for their customers.

With an abiding willingness-to-serve, this family's business is one of the most profitable per square foot of any retail store in the USA. When we taped this story there were 12 locations generating $160 million in annual sales and jobs for nearly 600.

So many new medicines are announced every day, it is almost impossible for anyone to keep up. But, those new Americans with a limited command of English, and our elders who are taking multiple medicines, have special challenges.

This family has always been committed to serving their customers. Eighteen-hour days, seven-days-a-week -- whatever it took to get the job done and keep their customers in good health -- these people have done it.
In the process, they have created a first-class business.

Opened in the United States in 1961, the two sons became pharmacists; and today, with 600+ employees, they have become the most productive pharmacy per square foot in the USA and they are a force for good that is helping to reshape Miami as a world-class community.

A classic family business, three generations of compassionate people are involved at every level of the operations.

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Navarro Discount Pharmacies

Jose Navarro, CEO

5959 NW 37th Ave
Miami, FL 33142
305-633-3000

Visit our web site: http://www.navarropharmacies.com

Office: 305-633-3000

Business Classification:
Retail, Pharmacy

Year Founded: 1961

Pour Your Earnings Into The Future

HATTIE: (Voiceover) Since 1968, Jose and younger brother Luis have added stores one at a time. Now they have 12. They aim for 20.

JOSE: We are extremely conservative. We have always tried to finance our growth.

HATTIE: Yourself.

JOSE: Yeah. We never have tried to borrow and borrow and borrow to a point that we cannot control it.

LUIS NAVARRO: My brother has always been the one with a vision. He's always had this thing about growth. And he's always had his eye on the major chains and on what they were doing and how--that was his dream.

HATTIE: Did you ever want to say, `Stop, this is big enough. Three or four, that's enough'?

LUIS: I kept saying that we have enough.

MARCEL: We moved here in '97. We went from 38,000 square feet to 92,000 square feet. That allowed us to bring a lot of new lines direct, and it's allowed us to provide a much more competitive price.

HATTIE: You've always grown with retained earnings. Now isn't that kind of tricky? Isn't that hard?

MARCEL: Yeah, it's been somewhat conservative growth. Now in the past couple of years, we've expanded quicker. In '97, we opened two stores and moved to this facility. In '99, we opened a store. And in the beginning of 2000, we opened two stores. So now is when we're really starting to grow at a little faster pace.

JOSE: Locally, we have found a niche, you know, being Miami has such a Hispanic concentration. We have, like, 12 percent or 13 percent of the Spanish market in the pharmacy business. So that means that if you take that Miami's 50 percent Latin, even more than 50 percent right now, that means that one of every four shoppers shops in Navarro's.

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